How to Evaluate a Credit Card Offer: Credit 411

You probably get a ton of credit card offers in the mail and via email. Every week another credit card company seems to want you to apply. You are pre-approved, they claim.

Ah, but what does this really mean? Pre-approved?

It does not necessarily mean they will send you the credit card they advertise. In fact, those advertisements get away with sounding so good by hiding tiny caveats in the small print at the bottom of the page or on the back of the offer letter. You need to become an expert at spotting a scam, so you can report it and save yourself and others money. Here is the best way to determine which offers really live up to the hype and which to skip, so you can build your creditworthiness.

How to Evaluate Credit Card Offers

How do you know which card advertisement is honest? And how can you tell a trap from a treat?

Read on and I’ll explain, in detail. As you will learn, the details really matter. You can evaluate any card offer in ten steps. There is no such thing as a simple credit card offer, so you have to know your stuff.

10 Steps to Evaluate a Credit Card Offer

  1. Evaluate the bank or financial institution offer the credit card. Avoid applying for a credit card from a lender with whom you are unfamiliar. It could be a scam. Unsolicited credit card offers typically do not offer the best interest rates or other terms.
  2. Determine if it meets the criteria of the credit card you desire. If you need a balance transfer card, but the offer extends a potential rewards card, it does not meet the card requirements of what you need. Taking out a credit card you do not need just mess up your credit more.
  3. Study the fee schedule. How easily avoidable are they? I once had a card with a bank that got into huge trouble with pretty much every financial oversight agency because they left off the caveats of their fee schedule. One of their no-nos was claiming a person had paid late if they paid at 5:01 pm on the due date – in their time zone. That is illegal. The credit company has to fully explain all fees and card terms in the documentation they give you. That bank got sued and had to pay back numerous “late fees” to people who had paid their payments on the day they were due. I learned the hard way not to do business with new organizations or “re-structured” banks.
  4. Do the math to determine the value of the annual fee. You may have the option to take out the card with an annual fee or the one without. Calculate which provides a better deal. Grab a calculator and pen and paper. Make notes so you can keep the various credit cards straight.
  5. Calculate the cost of financing purchases on each credit card offer. Be honest with yourself. Lying to yourself about how you handle money only hurts you. It is one of the biggest credit card mistakes. If you typically make only the minimum payment, then you won’t want a card with a mid- to high-interest rate. If you never carry a balance month to month, this has little bearing, so long as you have enough savings to keep paying the card in full if you lost your job.
  6. Closely examine any rewards program offered. The reward rates vary on these cards and everyone is different. Typically, different types of purchases earn different payouts. You need to reference your budget to determine where you spend money. That will tell you whether the rewards card will benefit you. If it pays you back on airline flights, but you only fly somewhere once every five years, that will not benefit you. Also, consider for what items you can redeem credit card rewards. Common items include cash, travel, gift cards, charitable contributions, and merchandise.
  7. Study the credit card offer for other card benefits, such as shopping and travel protections. The credit card information also covers other provisions the bank may extend include price and purchase protection. The card might include trip cancellation and interruption protection, car rental insurance and lost baggage protection. Cards with EMV chips have become more popular and this factor keeps your finances safer since credit cards with this feature are much tougher to hack.
  8. Consider the bank issuing the card and which retailers accept it. While four ..major payment networks exist — Visa, MasterCard, American Express and Discover, only the former two are widely accepted.
  9. Check if the card issuer extends credit to those with your credit score. Also, check for other application qualifiers. You can enhance your approval rating by only applying for what you genuinely qualify. If you have a low-income, do not apply for a platinum card. If you have bad credit, do not apply for cards offering prime rates. Make sure you already meet income threshold requirements or membership requirements.
  10. Read the fine print carefully. Read it a few times. You need to fully understand everything in the fine print. Some credit cards will actually repossess the items you purchased with them rather as a bank takes back your car if you miss the payments.

Let’s go into some of those topics in greater detail. First, let’s talk about the main types of credit cards available to you.

Credit Card Types

You typically come across four types of credit cards, balance transfer, rewards, temporary zero interest and secured. Each offers vastly different benefits.

Balance Transfer Credit Cards

These cards let you pay off existing credit card debt by transferring the balances to a card with a low-interest rate or no interest rate. You should use these to pay off high-interest rate cards. You may pay a fee to transfer but will probably make it back through the interest saved.

Rewards Credit Cards

You can earn cashback or other rewards by using these cards. If you pay off your balance in full each month you can use these cards to make money. Some provide a signup bonus that pays you when you hit the required spending minimum within a specific time period.

Introductory Zero Percent APR

Often, this gets offered in conjunction with balance transfer cards. Typically, these offer zero percent interest on purchases and balance transfers for six to 18 months.

Secured Credit Card

Secured cards let an individual re-establish their credit by matching the credit limit with a deposit of the same amount. They can help a person with poor or limited credit obtain a card to prove their creditworthiness. These differ from prepaid cards because you still must make timely payments and your payment activity gets reported to the credit bureaus.

If the card offer you receive does not meet your needs, ignore it. Do not apply for every card offer you get since this will ruin your credit score. Every time you apply for credit of any type, the creditor requests your credit report from a credit bureau. This activity results in what those in the financial sector call a hard hit to your credit score. Every application drops your score by two to five points. You can quickly tank a decent score by applying for only a few cards. The 10 to 25 points a score drops from five applications can take a 700 to 675. That means going from a “very good” to a “good” score. Only apply when you feel certain you will get accepted for the card. That means you ensure you meet all of the criteria before you try.

The Fees, The Fees!

Every credit card has fees. There is no way around it. The bank wants to make money, and they charge you at every possible juncture to do so. These fees are a method of risk reduction.

Financial lending institutions are typically quite risk-averse. They like very low-risk situations only. Like an insurance agent not wanting to extend a wind policy on the east coast of Texas because they would have to pay a claim so often, a bank or credit union does not want to extend a credit card to those with low credit scores because they are doubtful they will get paid on time or at all.

Individuals with high credit scores obtain credit cards with much lower fees. Those cards also charge far fewer fees. Check the credit card offer for the full fee schedule. Look for the following.

Annual Fee

Every year you will get charged for the privilege using the card provides. This could amount to $25 a year or $200. Annual fees are all over the place. The range is huge. Higher fees typically provide higher rewards.

Late Payment Fee

Nearly every credit card charges late fees. They might vary, but you should expect an average cost of about $35 if you pay late. The bonus is you can avoid this by paying on time. Set up automatic payments so you do not need to worry.

Cash Advance Fee

Another fee you cannot avoid the credit card having is your cash advance fee. If you use the card to get money back from the ATM or bank branch, you get charged a cash back fee. You will never need to pay this if you do not use the card for advances. If you use it for an advance though, you do pay the cash advance fee as well as a higher APR. Also, advances do not provide a grace period, so you will get charged interest from the first day you take out the advance.

You also need to watch for situational fees. The most common of these is the foreign transaction fee.

Foreign Transaction Fee

You only incur this foreign transaction fee when you use your credit card in another country. This percentage-based fee, typically three to four percent, gets charged every time you make any purchase in another country. To avoid it, just do not make a charge using that card when you travel to another country.

Calculate the Annual Fees

Up there in step two, you read about comparing types of cards and now we covered many potential fees, too. The annual fee requires your closest attention.

As mentioned in step four, credit cards can have two annual fee options, one with and one without. You need to compare the costs with the credit card’s benefits. Some are more straightforward than others. Here’s the math.

Let’s say you have two versions of the same card, one with a fee, one without. Both feature a sign up bonus, but in different amounts. You need to find the y, in this case, how long it takes for the cards to exhibit equal benefit. Since you only get charged $89 in years two and thereafter, you need to figure out how many years the bonus pays for as compared to the bonus you get with the no annual fee card.

Card A: $400 signup bonus, $89 annual fee waived the first year

Card B: $200 signup bonus, no annual fee

The Math for Card A
$400/$89 = 4.49 (round to 4.5)
4.5 + 1 = 5.5 years of annual fees paid

The Math for Card B = 200
Provides you with a flat rate.
You do not pay any annual fee, so the $200 is yours to spend as you like. You could pay it to the card once you have purchases to avoid paying interest.

If the card with higher bonus has better rewards, use the $400 and the fee waived year to earn rewards, then just before year five’s annual fee occurs, transfer any remaining balance to a balance transfer card after cashing out your rewards. You made money on the deal.

Compare rewards rates, too. Some cards with an annual fee provide more points per dollar spent. The only time you benefit from this though is if you spend money on what the card rewards are.

Fees Credit Card Companies Don’t Want You to Know

Bait and Switch: It Is Illegal

So, remember way up there where I mentioned that the card offer you get in the mail is not necessarily the card you get? Yeah. That happens all the time, but it is not supposed to happen.

Advertising one product, but switching in another after the contract gets signed or the product gets purchased is against the law.

Credit card companies try it all the time though. That keeps the lawyers busy.

So, you sifted through the whole pile. You worked your way through all the math on multiple orders. And you chose the card. You applied to the pre-approved offer. Then you got a letter that says you are approved but wait. You got approved for a different card than you applied for from the pre-approved offer. Somewhere in this letter, perhaps in very teeny, tiny print, it says something to the effect of, “Well, dude, you did not quite qualify for that one credit card, but we have this nearly, equally fabulous card for which you do qualify. Here it is, all wrapped up with a bow on the front card face and an [insert way obscene credit limit for your actual credit situation].”

Guess what? It is not equal to the other card. But, you will not know that unless you remain super calm and read every, single, solitary word in front of you just as you did the prior pre-approved credit card. What you probably got sent has higher interest rates or higher fees or some awful surprise.

Resist the urge to go buy a new TV and computer. Instead, do the reading and the math. For one thing, you were pre-approved. That means that they already knew your credit score. They should not have sent the letter with pre-approval if you did not actually qualify. When you find the hidden fee or the catch, you will know whether or not you should reject the card. You probably should because it typically will be a huge diference.

That’s how they get you. You excitedly tear open the envelope, recognizing the address and company on the outside. And you remember applying. But you do not read the letter. You just rip the card of the front, sign the back and go shopping! So, protect yourself. Read the letter anally. Double check everything against your pre-approval letter. (Yes, you should have kept it.)

If the card is not up to par, as my CPA pal would say, reject it. Phone the company and let them know you will not accept the new card terms. Close the account without charging to it. Doing this can save you from massive fees you did not expect. The great news is that you will only be out the two or five credit score points from the hard hit to your credit report for the check. That is much better than a surprise $200 setup fee or $100 annual fee or interest rate 10 points higher than the original.

A Credit Card Shopping Trick

If you’re looking for a magic credit card shopping trick, here’s something that may interest you. Conduct wise shopping for a credit card. You need to use combination of Creditry and Loanry to best protect your credit and to find really high quality credit cards.

Wait. Why would I say you would need Loanry when you keep getting offers in the mail for credit cards?

Simple. Those offers may not be good credit cards for you. You may actually need a credit card because you need to shop online at certain retailers that do not let you use pre-paid cards. You might need to rent a car and the rental companies typically do not rent to people without a credit card. They want to be able to tack on fees, charges and extra rental days, just in case you keep the car extra time.

So, eventually you will need a credit card. When you do, you need to be choosy about to which you apply.

The ones they mail to you in the offers may not be appropriate, but somewhere, there is a credit card perfect for you.

Loanry works like a mall. You know how you go shopping for jeans or a sweater? Loanry lets you apply the same concept to loans.

The brief form you complete on it front page may only contain basic info like your name, address and the last four digits of your Social Security Number, but it acts like a personal shopper gathering potential blue jeans for you to try on in the fitting room. Loanry makes a soft hit to your credit report that does not ding your credit score for any points. It then may find a good fit and you may get the name, URL and essential details of the credit product to you.

The site handles the research of for which credit cards you may qualify for you. You then simply read through the information and pick the offer for which you want to apply. You apply knowing that you already meet the minimum qualifications for the card.

Managing Your Credit

You need to be a smart cookie about your credit. You can use a simple website like to help you manage your debt and develop your credit score. If you already have credit, be sure to use a debt tracker to monitor all of the credit lines you have open.

The advantage to using a service like Creditry is that it helps you track everything that has to do with your credit. You can quickly find mistakes on your credit report and improve your credit score.

Creditry can help you watch for things that lead to credit damage and zombie debt like:

  • identity theft,
  • computer error,
  • fraud.

Those things can happen more easily than you think. Take identity mix ups, for example. Right after graduating from graduate school, I landed a job at a major university. The school benefits office unintentionally mis-entered my information and that of another woman who worked on a different campus. They had confused us since one has the middle initial “R” and the other has the middle initial “L.” Paperwork gets confusing when you see hundreds of the same form everyday and they were short-staffed on data entry clerks.

They fixed it, but it took time. For months, we similarly named women traded benefits paperwork through campus mail between the main campus and health sciences campus. We laughed about it and struck up a telephone friendship. We chuckled when I got notices about her then teen’s braces (and I have never had kids) and she got the ones of my physical therapy for a mountain biking knee injury (and she had never mountain biked).

Creditry can help you watch your credit report for the craziness like that. We just lucked out that we were both anal about paying our bills and sending paperwork back and forth. The benefits office eventually got it straightened out. It takes time and commitment to solve such problems. It took us months and we had a friendly benefits clerk, plus it was our employer.

Vigilance about keeping watch over your credit score can help protect your credit score and/or help you rebuild it. Use services like Creditry to monitor your credit report. Quickly respond to the credit bureau to question any unusual data.

Final Thoughts

Credit card companies will try to draw you into their lair. Tame their attempts by fully examining and analyzing each offer. If you only receive offers that do not meet your credit needs, turn to Loanry or Cashry to find the right option. The best plan is to have few credit cards with large credit lines that you do not max out. Manage your money and your credit wisely.

The brands within Goalry can help with that. We unified finance to help make shopping for loans, credit, money and real estate more efficient. These sites work together to help you achieve the goal of financial independence. To begin building wealth, you first must get out of debt. Your next step is saving with a third step of establishing and building great credit. Start now and get a handle on the credit card offers in your mailbox.

You have to be careful with your credit. Your credit cards should serve you. You should be their master. MasterCard should not be yours.